Medical Marihuana – Excise Tax Obligations of Sellers

 Hedges v The Queen, 2014 TCC 270

Justice Campbell Miller, in his usual style, provided a detailed and well-reasoned decision, somewhat clarifying this complex and problematic area of law.

At issue was whether dried marihuana grown and sold by the Appellant was zero-rated or not.  Justice Miller held that dried marihuana is, perplexing to the common man, being a “Drug” under the federal Food and Drug Act, is not a “Drug” for purposes of the Excise Tax Act because of the interplay of the Narcotics Control Regulations or the Controlled Drug Substances Act.  In short, dried marihuana is not zero-rated.

In coming to this conclusion the court differentiated the decision of the Ontario Superior Court of Justice in R. v. Mernagh, 2011 ONSC 2121, and relied on the definition of “prescription” as determined in R v Falconi, 1976 31 C.C.C. (2d) (144) (Ont Cnt Crt)., and Pagnotta v R, (2001) 4 C.T.C. 2613  – being that a prescription requires a communication by a doctor to someone to prepare or dispense a substance in stated amounts; a definition not met by the medical declaration for medical marihuana.

It is best to quote the conclusions:

[97]        As is often the case, where statutes or regulations that arise subsequent to other pertinent legislation are to be interpreted in the context of that earlier legislation, there can be an awkwardness to the interpretation. That is what I am faced with. While I have found the term “drug” in the opening part of Schedule VI‑I‑2(d) of the Act can only be interpreted to include dried marihuana, this conclusion, given the ongoing evolution of marihuana-related legislation, renders the exclusionary clause (ie. beginning with “other than” in Schedule VI‑I‑2(d) of the Act) somewhat oblique in its application to dried marihuana.

[98]        Appellant’s counsel have raised strong and thought provoking arguments for an interpretation resulting in dried marihuana being zero-rated but, with respect, they have lost sight of the forest for the trees. This was most apparent to me in their argument that the exclusion in Schedule VI‑I‑2(d) of the Act was an exclusion of over-the-counter drugs. Po-Chi, I find, is more akin to an over‑the‑counter drug than a drug acquired by prescription: one has little or no Government control versus significant Government control.

[99]        The legislation has twisted itself out of shape by requiring the sale to a consumer pursuant to the Controlled Drugs and Substances Act regulations, being the MMARs, without prescription or exemption. It contemplates only lawfully managed drugs. And if a lawfully managed drug can be acquired without prescription (which I have determined dried marihuana can be by ATP) then it is not zero‑rated. And if it is not zero-rated, then dried marihuana that is not subject to the Controlled Drugs and Substances Act regulations cannot be zero-rated. It would be a nonsensical result otherwise. As I have intimated earlier in these Reasons, this area of legislation needs work. If the Government intends that all sales of dried marihuana are to be zero-rated, say so clearly. If the Government intends that all sales of dried marihuana are to be subject to GST, say so clearly. If the Government intends to have dried marihuana as a prescribed drug and only dried marihuana obtained by a prescription is to be zero-rated, say so clearly.

[100]   There is understandable confusion in the industry on this point. My conclusion is clear – dried marihuana sold by Mr. Hedges is not zero-rated. I cannot say, however, with a great deal of enthusiasm, that I have clarified the legislation itself: there remain gaps and inconsistencies. Regrettably, that is the nature of this legislative beast.

– Sas Ansari, JD LLM PhD (exp)

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